For businesses or individuals wanting to renovate or purchase commercial real estate, long-term financing options may not provide the reasonable rates they’re looking for. That’s because a strip mall might need to be refurbished before a bank is willing to write a traditional mortgage. Or maybe a buyer needs to act fast to secure a desirable loan with low interest rates.
In these unique circumstances, a commercial bridge loan can open the doors to immense opportunities for investors. However, there is no perfect bridge lender for everyone.
By the end of this article, you will have a clearer understanding of what a commercial real estate bridge loan is, common uses for these loans, bridge loan pros and cons, leading bridge lenders, and whether this financing product can benefit your ventures.
What Is a Commercial Real Estate Bridge Loan?
A commercial real estate bridge loan, also known as gap funding or a gap loan, is a short-term financing option intended to tide over a borrower during a temporary cash crunch. The bridge loan, as the name suggests, helps the business get from one stage to the next, including setting up a long-term mortgage or selling a property to pay off the bridge loan.
While the actual terms for a bridge loan can vary greatly, they will generally fall within these ranges:
- Fees: 1% to 2% of the loan amount
- Payments: Interest-only monthly with a balloon payment at maturity
Some of the biggest benefits of a commercial real estate bridge loan include:
- Fast and flexible financing options
- Does not require personal guarantees, making these loans less risky for borrowers
“Sometimes a deal has very few options and the only viable option is a bridge loan,” said Rob Beardsley, Principal at Lone Star Capital. “For instance, if a property is not stabilized, or not 90% occupied for 90 days, your financing options are more limited. For a non-resource option, a bridge loan is the only way to go. Businesses can also get their renovation budgets funded by a bridge loan lender. These loans are more flexible and can be tailored to your individual needs.”
Unfortunately, bridge loans are not without their risks. Bridge loans can be more expensive than traditional financing options. Additionally, the value-add activities must be completed in a short span of time.
Borrowers also need to be wary of bridge loans that seem too good to be true. Some types of commercial bridge loan scams include up-front-fee and bait-and-switch scams.
Common Uses for Commercial Bridge Loans
There are several unique scenarios where a commercial real estate investor might decide to apply for a bridge loan, including:
- The property isn’t producing income
- When the property is not considered to be stabilized
- An investor is buying and flipping a property
- If a borrower is temporarily unable to secure a mortgage with good terms
- A would-be property buyer wants to close a deal right away and needs money too quickly for favorable long-term financing to be arranged
- When a traditional lender falls through at the last minute
- Financing won’t come through for a few months or more
- An investor has plans to renovate a property
- A borrower wants to buy raw land and build a new building they would sell later down the road
8 Top Commercial Real Estate Bridge Loan Lenders
Looking for a quality commercial bridge lender? Here are eight top bridge loan lenders for commercial real estate investors.
As the seventh largest bank in the United States, PNC is a trusted source for commercial real estate bridge loans. A PNC bridge loan can be used to purchase or refinance an owner-occupied commercial property and offers fixed or variable rates. Terms are up to 180 months, with a 20-year amortization. Borrowers can obtain loans ranging from $100,001 to $3 million.
AVANA Capital provides commercial real estate investors with flexible bridge loan options built around their time-sensitive needs. Borrowers that are in need of intermediate financing can receive up to 75% of the as-is value of their purchase within 12 to 36 months. AVANA Capital’s bridge loan interest rates fall between 6% and 11%.
Commercial Loan Debt offers 200 different loan products to investors nationwide. Their terms and rates are competitive with those of traditional banks, and borrowers can apply for a loan from the comfort of their own homes. Commercial Loan Debt’s average starting rates for investment mortgages are 1.94% to 10.99%. Their bridge loan terms are for 36 months. Investors can borrow between $1 million and $5 million.
Bloomfield Capital is a commercial real estate financing company that offers loan amounts ranging from $2 million up to $20 million. Their rates range from 8% to 11%, and their terms are from six months to three years.
Arbor is a nationwide commercial lender that provides numerous mortgage loan options, including commercial bridge loans. Their loans can be a good product for investors that aren’t sure if 36 months is enough time to complete a redevelopment project, as extension options are available. Arbor offers interest rates as low as 6.5% and loan amounts starting at $8 million.
Socotra Capital is a financing company that provides bridge loans ranging from $100,000 to $12 million with loan terms ranging from six months to 20 years. Their interest rates start at 6.99%. Loans are available to businesses, individuals, trusts and limited partnerships.
This commercial mortgage broker offers bridge loans ranging from $1 million up to $100 million. Their loans have fixed and floating rates, starting at L + 250, with 60-month initial terms and extensions.
Commercial Bridge Loan FAQs
Now that you know who the top commercial real estate bridge lenders are, let’s dive into the three most commonly asked questions about this type of loan.
What is the average interest rate on a bridge loan?
The average interest rate for commercial real estate bridge loans ranges from 6% to 12%.
What banks offer bridge loans?
Bridge loans are typically offered by the commercial property branch of major banks and credit unions. You can also obtain a bridge loan through private money lenders.
What credit score is needed for a bridge loan?
You need a credit score of 650 and above to qualify for a bridge loan.
Is a Commercial Bridge Loan Right for You?
If you are a commercial real estate investor who needs funds fast for a property that isn’t currently stabilized or one that you’re planning to redevelop, a bridge loan could be a great option for you. Always shop around to find bridge lenders with favorable interest rates that cater to your budget.
In Texas? Check out the top 12 commercial lenders in Texas next, and learn more about bridge loans in Texas, too.